Please ensure Javascript is enabled for purposes of website accessibility

Why Jumia Technologies Stock Soared on Thursday

By Jon Quast – Oct 8, 2020 at 2:09PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The African e-commerce platform is making a move previously tried by a number of e-commerce leaders.

What happened

Shares of African e-commerce company Jumia Technologies (JMIA 3.26%) soared on Thursday after it announced it's launching a gaming platform in collaboration with technology company Mondia. Jumia Games is now available to users of the JumiaPay app in five African countries, and the company plans to expand it into more markets in the coming weeks.

The press release regarding the new service first appeared on the Mondia website on Wednesday while the market was open. But Jumia's stock rise may have been delayed since it didn't appear on that company's investor relations page. In other words, it has taken a little while for the news to get around. But now that it's out, the stock is soaring -- up 15% as of 1:30 p.m. EDT.

So what

Investors are cheering this news because it appears Jumia is following a game plan that's straight out of the playbooks of successful e-commerce leaders from around the globe. Just last year, it launched a subscription service similar to Amazon Prime called Jumia Prime in select markets. In Latin America, MercadoLibre is the dominant e-commerce player, and its Mercado Pago payments platform has proven popular. Jumia, following suit, created JumiaPay. And in Asia, there's Sea Limited, which used its growing video gaming business as a launchpad to get into e-commerce and mobile payments, too. And now, Jumia has Jumia Games.

A businessman rides a rocket ship expelling cash exhaust over a multi-colored bar chart.

Image source: Getty Images.

These other companies have delivered market-crushing returns to investors. But more importantly, their businesses have thrived and are thriving by facilitating digital transformations in their primary regions of operations. Africa is a continent ripe for digital disruption, and Jumia is a clear top candidate to do it. 

Now what

Jumia is a small-cap company with lots of potential, but investors should keep their expectations realistic. Operating in Africa comes with unique challenges such as a large fraction of the population being unbanked, and infrastructure conditions in many places that are not ideal for shipping merchandise. Furthermore, the company hasn't exactly had flawless execution to this point, as evidenced by its need to shut down operations in Tanzania and Cameroon last year.

The opportunity is there for Jumia. But this company is still so young that I'd recommend focusing more on business results than on press releases announcing new products.

To be clear, Jumia Games is an interesting development, and investors should be encouraged to see this company trying out as many new ideas as possible to see what works for it. But in isolation, this development is not enough to make me want to buy Jumia stock today. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jon Quast has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, MercadoLibre, and Sea Limited and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

Stocks Mentioned

Jumia Technologies AG - ADR Stock Quote
Jumia Technologies AG - ADR
$4.75 (3.26%) $0.15

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.